Manufacturing sector on the rise

August fifth straight month of expansion for Canadian firms, U.S. also showing strength
By Alastair Sharp
||Last Updated: 09/03/2013

(Reuters) — Growth in the Canadian manufacturing sector was marginally stronger in August than it was the previous month, a survey showed on Tuesday, with employment in the sector expanding at the fastest pace in three months.

The RBC Canadian Manufacturing Purchasing Managers' index (PMI), a gauge of manufacturing business conditions, edged up to 52.1 in August after adjusting for seasonal variation from 52.0 in July.

A reading above 50 shows growth in the sector.

It was the fifth straight month of expansion, though output prices slipped for a second straight month and input prices jumped the most since March.

Royal Bank of Canada (RBC) said the data showed resilience in the face of recent economic shocks and that further gains were likely.

"We expect that improving U.S. demand will continue to provide a boost to the manufacturing sector for the balance of the year," RBC's chief economist, Craig Wright, said in a statement accompanying the data.

Economic growth in Canada slipped into a lower gear in the second quarter, data released on Friday showed.

Meanwhile, economic recovery in the United States faces tepid inflation and very little additional consumer appetite to spend, according to figures released on Friday.

The RBC PMI report showed that about 18 per cent of companies surveyed said they hired more workers in August, while seven per cent said they reduced staff.

New orders were steady at 52.6, notching a fifth-straight month of expansion, while output, at 51.6, grew at its slowest pace since April.

The rising cost of buying goods such as oil and steel pushed input prices up to 53.2, the highest level since March. Output prices, however, had the first back-to-back monthly decrease since the data series began in October 2010 as some manufacturers lowered prices to win new business.

U.S. showing signs of life

The U.S. manufacturing sector grew last month at its fastest pace in more than two years, bolstering expectations for faster overall U.S. growth in the second half of the year, an industry report showed on Tuesday.

The Institute for Supply Management (ISM) said its index of national factory activity rose to 55.7 in August from 55.4 the prior month, comfortably beating expectations for 54. It was the highest reading since June 2011.

A reading above 50 indicates expansion in the sector.

New orders also marked their best level in more than two years, with that sub-index jumping to 63.2 from 58.3. Employment, however, slipped to 53.3 from 54.4.

The government will release its August employment report on Friday. Economists forecast employers added 180,000 new jobs last month after hiring 162,000 workers in July.

Manufacturing has been hurt this year by cuts in government spending and weaker global demand, causing the sector to shrink in May. But sizable increases in activity in July and August are adding to economists' views that U.S. goods-producing companies are finding their footing as the year wears on.

Data last week showed the economy grew at a quicker-than-expected pace in the second quarter and should continue to gain momentum.

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